Vsource (NASDAQ:VSCE)
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Vsource(R) Announces Results for Third Quarter, First Nine Months of Fiscal
2004;
Change of Directors
LA JOLLA, Calif., Dec. 10 /PRNewswire-FirstCall/ -- Vsource, Inc. (BULLETIN
BOARD: VSCE) , an innovative leader in providing customized global business
process outsourcing (BPO) services to clients worldwide, today announced its
financial results for its third quarter and first nine months of its fiscal year
ending January 31, 2004 (fiscal 2004).
(Logo: http://www.newscom.com/cgi-bin/prnh/20030910/VSCELOGO )
Revenue for the quarter ended October 31, 2003 totaled $4.73 million, compared
to $6.04 million for the same prior year period. The company reported a net
loss available to common shareholders of $7.80 million or $3.97 per basic share
for the third quarter. Net loss available to common shareholders during the
period included a non-cash charge of $3.03 million from deemed non-cash
dividends to preferred shareholders and one-time charges of $1.47 million for
expenses related to the company's termination of its merger with TEAM America,
Inc., and $0.68 million for accounts receivable due from Team America that were
written off as a result of Team America's Chapter 11 proceedings. Excluding the
deemed non-cash dividend and the one-time charges, Vsource's net loss was $2.62
million in the third quarter of fiscal 2004. The company recorded a deemed
dividend credit arising from the conversion of preferred stock to another class
of preferred stock in the third quarter ended October 31, 2002, when it reported
a net loss available to common shareholders of $1.60 million or $0.91 per basic
share.
Revenue for the first nine months of fiscal 2004 totaled $14.26 million,
compared to $21.04 million for the same prior year period. The company reported
a net loss available to common shareholders of $16.55 million or $8.75 per basic
share for the first nine months of fiscal 2004. Net loss available to common
shareholders during the period included non-cash charges of $8.66 million from
deemed non-cash dividends to preferred shareholders, $0.09 million from
amortization of stock-based compensation expenses. Excluding the deemed non-cash
dividend and one-time Team America-related charges, Vsource's net loss was $5.74
million for the first nine months of fiscal 2004. The company recorded a deemed
dividend credit arising from the conversion of preferred stock to another class
of preferred stock in the same prior year period when it reported a net loss
available to common shareholders of $3.64 million or $2.11 per basic share.
The Company's earnings before interest, taxes, depreciation and amortization,
adjusted to exclude non-cash expenses ("Adjusted EBITDA"), were a loss of $4.25
million for the quarter ended October 31, 2003, compared with Adjusted EBITDA
loss of $0.38 million, adjusted to exclude non-cash stock-based compensation
charges of $0.06 million and non-cash loss on extinguishment of debt of $6.70
million, for the same prior year period. For the first nine months of fiscal
2004, Adjusted EBITDA were a loss of $6.16 million, adjusted to exclude non-cash
stock compensation charges of $0.09 million, compared with Adjusted EBITDA of
$0.54 million, adjusted to exclude non-cash stock compensation charges of $0.09
million and loss on extinguishment of debt of $6.70 million, for the same prior
year period. Adjusted EBITDA represents a non-GAAP (Generally Accepted
Accounting Principles) financial measure. A table reconciling this measure to
the appropriate GAAP measure is included in the notes to the consolidated
financial statements included in this release. Net cash as of October 31, 2003
totaled $5.12 million, compared to $12.71 million as of October 31, 2002 and
$11.15 million as of January 31, 2003.
Commenting on third quarter results, Vsource Chairman and Chief Executive
Officer, Phil Kelly said, "Clearly the termination of the Team America merger
was a significant set-back for Vsource in the third quarter. We committed
significant efforts and resources to the merger. While our inability to
complete it arose from events that were beyond our control, it nevertheless did
slow us down. In addition to the negative impact on our financial performance
due to the resulting one-time charges, it caused short-term disruption in our
efforts to build up our delivery of our Human Capital Management (HCM) services.
Despite this, we are forging ahead with our plans to make a January 2004
large-scale launch of our HCM solutions to serve small and mid-market businesses
in the U.S."
"In our core BPO solutions, our sales efforts continue to gain momentum with the
addition of two significant contracts with new Fortune 500 clients signed in
August and October, respectively. We added two new facilities to our expanding
network of Centers of Excellence to support these clients and other newly
acquired clients. The Taipei, Taiwan facility is our third Center of Excellence
in the Asia Pacific region designed to support a global insurance provider in
the Taiwan market. Tomorrow, we will be dedicating our fourth Center of
Excellence, located at the Cyberjaya technology park in Malaysia. This fourth
Center of Excellence will focus on global human resource solutions to clients
worldwide. We are committed to growing our Centers of Excellence to enhance our
unique operating platform for the delivery of BPO services to clients globally.
In addition, during the third quarter, we achieved many significant milestones
as we continued to build out our infrastructure and continued to successfully
implement and deliver on our client contracts.
Vsource's results for the three months and nine months ended October 31, 2003
included $0.34 million and $0.67 million, respectively of revenues generated
from a services contract with TEAM America, Inc. On September 26, 2003, Vsource
announced that it had terminated the Merger Agreement, dated as of June 12,
2003, by and among Vsource, TEAM America, Inc. and Beaker Acquisition Co., Inc.,
due to the breach by TEAM America of various representations, warranties,
covenants and agreements set forth in the merger agreement and the occurrence of
a material adverse effect on TEAM America.
In addition, Vsource today announced that Bruno Seghin, a member of its Board of
Directors, had resigned with effect from December 9, 2003, and Luc Villette had
been elected by Vsource's Board of Directors to fill the vacant seat with effect
from the same date. Mr. Seghin, who had served as a Director since October
2002, had been nominated to the Board by Capital International Asia CDPQ, Inc.
("CDP") pursuant to the terms of a Stockholders Agreement dated as of October
25, 2002 between Vsource and the stockholders party thereto (the "Stockholders
Agreement"), and CDP subsequently nominated Mr. Villette to fill the seat
vacated by Mr. Seghin.
Based in Hong Kong, Mr. Villette, aged 55, is the Managing Director of AlterAsiA
Limited, a company that provides investment advisory services to institutional
clients. Since 1998, he has worked for CDPQ, the largest Canadian Pension Fund,
serving as Managing Director of several of their affiliates involved in private
equity investments in Asia. Prior to that, he was the Chief Operating Officer
of Archon Group (France), a Goldman Sachs subsidiary involved in the acquisition
and the work-out of distressed real estate loans portfolios. From 1987 to 1993,
he was the Chief Financial Officer of Pargesa Holdings and Parfinance, which
were companies listed in Geneva and Paris, respectively, and both affiliates of
Power Corporation of Canada.
Vsource, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
Three months ended Nine months ended
October 31, October 31,
2003 2002 2003 2002
Revenue $4,730 $6,043 $14,264 $21,040
Operating Expenses
Cost of revenue 3,334 3,314 8,571 10,537
Selling, general
and administrative 4,700 3,926 12,051 11,892
Amortization of
stock-based
compensation
expense -- 57 94 907
Write-off of
merger-related
expenses 1,467 -- 1,467 --
Insurance proceeds
in respect of
loss on inventory -- -- -- (464)
Loss on
extinguishments
of debt -- 6,703 -- 6,703
Total expenses 9,501 14,000 22,183 29,575
Operating loss (4,771) (7,957) (7,919) (8,535)
Non-cash
beneficial
conversion
feature
expense (1) -- (587) -- (1,717)
Other interest
income (expense) 5 (191) 31 (528)
Net loss $(4,766) $(8,735) $(7,888) $(10,780)
Non-cash deemed
dividend to
preferred
shareholders (2) (3,029) 7,136 (8,664) 7,136
Net loss
available to
common
shareholders $(7,795) $(1,599) $(16,552) $(3,644)
Basic and diluted
net loss per
share available
to common
shareholders $(3.97) $(0.91) $(8.75) $(2.11)
Weighted average
number of common
shares outstanding
Basic and
diluted (3) 1,964 1,749 1,892 1,725
Earnings before
interest, taxes,
depreciation &
amortization
excluding non-cash
stock compensation
expense (4) $(4,249) $(382) $(6,155) $1,353
Adjusted EBITDA
margin (5) -89.8% -6.3% -43.2% 2.6%
(1) Non-cash beneficial conversion feature charges associated with the
issuance of convertible debt
(2) Non-cash deemed dividend for preferred shareholders associated with
the amortization of beneficial conversion feature and accretion of
redemption value of Series 4-A convertible preferred stock and;
associated with reversal of beneficial conversion feature originally
recognized on Series 2-A convertible preferred stock and warrants
upon exchange for Series 4-A convertible preferred stock
(3) Excludes common shares outstanding on an "as converted basis"
totaling 20.3 million in aggregate associated with preferred stock,
warrants and vested employee options outstanding
(4) Reconciliation of Net loss to Adjusted EBITDA
Three months ended Nine months ended
October 31, October 31,
2003 2002 2003 2002
Net loss $(4,766) $(8,735) $(7,888) (10,780)
Add:
Non-cash
beneficial
conversion
feature
expense -- 587 -- 1,717
Other
interest
(income)
expense (5) 191 (31) (528)
Depreciation
and amortization 522 815 1,670 2,278
Amortization of
stock-based
compensation
expense -- 57 94 907
Loss on
extinguishments
of debt -- 6,703 -- 6,703
Adjusted
EBITDA $(4,249) $(382) $(6,155) $1,353
(5) Adjusted EBITDA margin is Adjusted EBITDA divided by Revenue
Vsource, Inc.
Consolidated Balance Sheets
(in thousands)
October 31, January 31,
2003 2003
Assets
Current assets:
Cash $5,118 $11,152
Restricted cash 150 150
Accounts receivable, net 1,692 1,522
Inventories 276 490
Prepaid expenses 270 337
Other current assets 1,608 1,262
Total current assets 9,114 14,913
Property and equipment, net 4,373 4,974
Restricted cash, non-current 500 250
Total assets $13,987 $20,137
Liabilities, Preferred stock and
Shareholders' (deficit) equity
Current liabilities:
Accounts payable $1,853 $1,134
Accrued expenses 5,187 3,333
Advance from customers 1,206 1,229
Total current liabilities 8,246 5,696
Advance from customer, non-current -- 900
Preferred stock 16,134 8,096
Shareholders' (deficit) equity (10,393) 5,445
Total Liabilities, Preferred stock
and Shareholders' (deficit) equity $13,987 $20,137
Non-GAAP Financial Measures
This release contains non-GAAP financial measures. Pursuant to the requirements
of Regulation G, Vsource has provided reconciliation within this release of the
non-GAAP financial measures to the most directly comparable GAAP financial
measures. Adjusted EBITDA has been presented in this release in order to assist
in the analysis of the operating profitability of the company because the
company believes this form of measurement eliminates the effects of non-cash
charges such as beneficial conversion feature expense, stock-based compensation
and depreciation and amortization. Management reviews this form of measurement
monthly. Vsource has consistently provided this measurement in previous
releases and therefore has provided a consistent basis for comparison between
quarters, which the company believes is useful to investors and other interested
persons.
About Vsource
Vsource, Inc., headquartered in La Jolla, Calif., provides customized business
process outsourcing (BPO) services to clients worldwide. Under Vsource Client
Outsourcing Solutions (COS), Vsource delivers superior BPO solutions to Fortune
500 and Global 500 organizations. Vsource COS include: Human Resource
Solutions, Warranty Solutions, Sales Solutions, and Vsource Foundation
Solutions(TM), which include Customer Relationship Management (CRM), Financial
Services, Travel and Expense Claims, and Supply Chain Management (SCM). Under
Vsource Humans Capital Management (HCM) solutions, Vsource delivers Fortune 500
reliability to small and medium-sized businesses in the U.S. HCM solutions
include: HR Management, Health & Welfare, Administrative Services, and Risk
Management. For more information, log on to: http://www.vsource.com/ .
For more information, visit the Vsource Web site: http://www.vsource.com/.
Forward Looking Statements: Some of the statements in this release and other
oral and written statements made by us from time to time to the public
constitute forward-looking statements. These forward-looking statements are
based on management's current expectations or beliefs and are subject to a
number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. These
forward-looking statements include, without limitation, statements with respect
to anticipated future operating and financial performance, introduction of
services and growth opportunities expected or anticipated to be realized by
management. Vsource disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future events, the receipt
of new information, or otherwise. Factors that could cause or contribute to
such differences include, but are not limited to, reliance on one client and the
expectation that revenues from this client will decline significantly, a
potential requirement to redeem our Series 4-A convertible preferred stock if we
fail to meet certain conditions by March 31, 2006, our limited experience in the
business process outsourcing business, the new and unproven market for business
process outsourcing services in the Asia-Pacific region, long cycles for sales
of our solutions, complexities involved in implementing and integrating our
services, fluctuations in revenues and operating results, economic and
infrastructure disruptions, dependence on a small number of vendors and service
providers, litigation, and competition. Other factors that may affect these
statements are identified in our previous filings with the Securities and
Exchange Commission.
Vsource is a registered trademark of Vsource, Inc. vMarketing and Vsource
Foundation Solutions are trademarks of Vsource, Inc.
Fortune, Fortune 500 and Global 500 are registered trademarks of Time Inc.
Vsource disclaims any proprietary interest in the marks and names of others.
For further information, please contact: Cindy Kim of Vsource, Inc.,
+1-858-456-4871, .
http://www.newscom.com/cgi-bin/prnh/20030910/VSCELOGO
http://photoarchive.ap.org/
DATASOURCE: Vsource, Inc.
CONTACT: Cindy Kim of Vsource, Inc., +1-858-456-4871,
Web site: http://www.vsource.com/